HK Stock Market Move | Data center sector across the board rises, GDS-SW (09698) surges over 17%, IDC operators' performance and valuations are expected to significantly increase.

The data center sector is on the rise across the board. As of the time of this report, GDS-SW (09698) is up 17.11% at HK$37.65; KINGSOFT CLOUD (03896) is up 6.86% at HK$8.72; SUNEVISION (01686) is up 3.53% at HK$8.21; and China United Network Communications (00762) is up 3.48% at HK$9.51. In terms of news, according to Caixin, the Hangzhou district of Yuhang is surveying local suppliers and core products interested in participating in Alibaba Group's major investment plan for cloud and AI. The survey scope includes software and hardware product providers registered in Yuhang district who are interested in participating in Alibaba Group's cloud and AI ecosystem construction. It was announced on February 24th by Alibaba Group CEO Wu Yongming that Alibaba will invest over 380 billion yuan in building cloud and AI hardware infrastructure, exceeding the sum of the past ten years. UBS Greater China telecom industry analyst Wang Xinyi stated that driven by the demand for domestic large models, the project return rate and performance growth of China's internet data center (IDC) operators are expected to surpass their overseas counterparts. However, their valuation is still significantly lower than the latter, indicating potential for valuation to rise. She pointed out that based on EBITDA/(net debt + equity), the average return rate of Chinese IDC companies in 2023 is 13%, higher than the 9% of global peers. With the drive of AI-related demand, it is predicted that the former's return rate will increase to 15% by 2026. In addition, Chinese IDC operators have a dynamic EV/EBITDA valuation of 17 times, lower than the global average of 24 times. With the industry supply and demand situation clearly improving, project return rates stabilizing, and the government encouraging data center operators to issue REITs to revitalize existing assets, it is expected that the valuation of Chinese IDC companies will have room to rise.